When we examined the disability income policy's renewability provisions, we noted that in the case of Guaranteed Renewable policies, the insurer had a limited right to raise premiums. The limitation imposed on the insurer's right to raise premiums on these policies limits its right only to raise premiums on a class basis. Insurers are not permitted to limit an increase in premiums only to your client's Guaranteed Renewable policy because of his bad claims history.

When we think of "classes" in disability income insurance policies, we mean that classification that is based on the applicant's occupation. This classification system results in occupation classes.

The primary role of occupation classes is to provide a sound and equitable basis for providing disability income insurance protection that takes into account two important considerations:

The likelihood of the insured's becoming disabled because of the risks imposed by his or her occupation, and

The probability of the insured's returning to his or her own occupation following a period of disability

Unlike the risk of death, which is principally a function of age, an applicant's occupation is an extremely important factor in the likelihood of his or her becoming disabled. A significant reason for the difference is that the determination of the applicant's continued disability often rests on whether he or she is able to perform the duties of that job.

Principally for that reason, it made good sense to place the many occupations in which people are employed into classifications that reflect both the job hazard and its likelihood of resumption.

Once the various occupations are assigned to their appropriate classification, these classifications play an important role in determining the:

Maximum monthly disability benefit amount available

Maximum benefit period available

Premium rate category

The insurer's Occupation Guide lists the occupation classes into which an applicant might fall based on the principal duties of his or her occupation. The information in the guide is usually presented in two ways:

An alphabetical listing of the most common occupations, followed by a designation of the class to which that occupation belongs

A broad definition of each occupation class providing general guidelines as to class placement, based on typical duties of an occupation:

General Description of Occupation Class

Occupation Class

Select professionals and managers with most favorable underwriting and claims experience

Certain skilled trades & supervision (foreman) and some medical support personnel. Work is often performed in a shop, medical facility, retail establishment or outdoors using light machinery; direct supervision of personnel performing manual duties; chiropractors

By looking at the general occupation class guidelines, you can see how occupation classes are characterized in this second method. In addition, however, these guidelines generally describe the limits of manual involvement permitted within each class. You will notice as the occupation classes move from 5A to 4A and eventually to B that the description of duties includes increasing amounts of manual work.

Although any individual insurer may change the language of the occupation classification chart, it is a composite of the way a number of companies approach the general classification of occupations. Not unexpectedly, perhaps, there are consequences to an applicant of being placed in a particular occupation class.

There are certain benefit limitations normally imposed by insurers on the basis of the insured's occupation class. Often, applicants considered to present the least risk -- those that fall into occupation class 5A, 4A or 3A -- may purchase a lifetime benefit period while those applicants in the more hazardous occupations cannot. Typically, those applicants that fall into classes A or B may be limited to 5 year or 2 year maximum benefit periods.

The limitations that insurers impose based on occupation class don't apply only to the maximum benefit periods available. The amount of maximum monthly benefit available may also be based on occupation classes. While an applicant that is a 5A risk may be able to obtain $15,000 of monthly income benefit, a bricklayer -- a B risk -- may be limited to $2,000 of maximum monthly disability income benefit.

BENEFIT LIMITATIONS BASED ON OCCUPATION CLASS

Occupation Class

Maximum Benefit Period

Maximum Monthly Benefit

Disability Definition

5A

Lifetime

$15,000

Own occupation for entire benefit period

4A

Lifetime

$10,000

Own occupation to age 65

3A

Lifetime

$10,000

Own occupation to age 65

2A

Age 65

$5,000

Own occupation (not engaged in any other occupation)

A

5 Years

$3,000

Limited own occupation (2 years)

B

2 Years

$2,000

Any occupation

As we can see, it isn't only the available amounts and benefit periods that are limited based on occupation class, occupation class also affects the actual definition of disability. It is undeniably more difficult for an insured in a lower occupation class to meet the definition of disability than for an insured in a higher occupation class because the definition is often considerably more stringent at the lower occupation classes that present the higher risk.

Notice that an insured in the B occupation class often must be unable to engage in any occupation in order to be considered disabled.

BENEFIT LIMITATIONS BASED ON OCCUPATION CLASS

Occupation Class

Maximum Benefit Period

Maximum Monthly Benefit

Disability Definition

5A

Lifetime

$15,000

Own occupation for entire benefit period

4A

Lifetime

$10,000

Own occupation to age 65

3A

Lifetime

$10,000

Own occupation to age 65

2A

Age 65

$5,000

Own occupation (not engaged in any other occupation)

A

5 Years

$3,000

Limited own occupation (2 years)

B

2 Years

$2,000

Any occupation

Although the differences that we have discussed based on the insured's occupation class are certainly important ones, the difference in the treatment of occupation classes that is usually most visible to the applicant is the difference in premium. The premium for the insured B risk, per $1 of benefit, may easily be double that charged the 5A risk.

It is the difference in the probability and severity of the disabilities to which people in different occupations are exposed that constitute the justification for the difference in the available benefits and their cost. It is clear that a bricklayer may suffer a disability and be unable to return to work as easily as would someone engaged in the accounting profession, simply because of the physical requirements of the job.

The nature of the industry, as well as the specific duties of a particular occupation, often impacts on the severity of the disability. Consider, for example, an industry in which employment tends to be cyclical or sporadic. It shouldn't be a surprise that these industries also incur the greatest number of disability claims during periods of unemployment. This phenomenon isn't necessarily the result of malingering, either. If disabled workers have no job to which to return, their drive to recover may be adversely affected.

Along the same lines, a job that involves irregular hours or earnings, such as a bartender, may constitute a higher disability risk.

There are also occupations that are usually uninsurable in most companies and which are characterized by:

extreme hazard

employment instability, and

significant claims administration problems

It doesn't take much imagination to conjure up a mental picture of someone in an occupation involving significant hazard. Consider those individuals working with explosives or firearms. In addition, occupations involving work at extreme heights would also qualify -- jobs like those of individuals building skyscrapers.

Employment instability is generally a hallmark of those individuals employed in the performing arts. It is that employment instability that usually causes them to be uninsurable for disability income insurance in most companies. Included in this occupation classification are actors, singers and dancers.

Those occupations in which the insured works at home may involve significant claims administration problems. The reason for those problems is simple: it is extremely difficult to objectively determine if the insured is unable to engage in his or her occupation. As a result of that claims administration difficulty, many insurers choose not to make their disability income insurance products available to individuals that work at home.

An exception is often made for those occupations in which the insured maintains an office in his or her home but must leave the office to see clients. A salesman might fall into this category. Applicants in such a situation are not usually be uninsurable because of their home office status.